PCAOB warns audit firms about using 'specialists'

February 4, 2025

The Public Company Accounting Oversight Board issued a staff report Tuesday cautioning auditing firms about relying on the work of specialists who help with fair value measurements and accounting estimates.

The new report pointed out that as financial reporting frameworks continue to evolve, there's been an increase in the frequency and significance of the use of the work of specialists in financial reporting and auditing. Specialists are needed more often because accounting estimates have become more prevalent and significant.

"Companies may also use company specialists to assist them in developing accounting estimates, including fair value measurements, or to evaluate characteristics of physical assets, among other things," said the report. "Auditors increasingly use the work of specialists in their audits to assist in obtaining and evaluating audit evidence. If a specialist's work is not properly overseen or evaluated by the audit firm, there may be a heightened risk that the audit firm's work will not be sufficient to detect a material misstatement in the financial statements."

The report includes PCAOB staff observations to help audit firms put in place the appropriate procedures when relying on the work of a specialist. Topics include:

Evaluating the work of a company specialist;

Using the work of an auditor-employed specialist;

Using the work of an auditor-engaged specialist;

Common deficiencies related to use of specialists;

Reminders for audit firms;

Good practices; and,

Questions that may be of interest to audit committees to consider about the work performed by the audit firm related to the use of specialists.

"The focus of the auditor's evaluation of the work of the company specialist does not require reperforming the work of the company specialist or evaluating whether the work complies with all technical aspects in the specialist's field," said the report. "Instead, the auditor's responsibility is to evaluate whether the work of the company specialist provides sufficient appropriate evidence to support a conclusion regarding whether the corresponding accounts or disclosures in the financial statements are in conformity with the applicable financial reporting framework"

Separately, last week., the PCAOB posted a staff presentation video to help auditing firms and auditors understand the firm's risk assessment process under the PCAOB's new quality control standard, QC 1000, A Firm's System of Quality Control. Led by staff in the PCAOB's Office of the Chief Auditor, the video covers topics such as establishing quality objectives, identifying and assessing quality risks, designing and implementing quality responses that address quality risks, and modifying the risk assessment, as needed.

[Accounting Today]